Thank you for standing by, and welcome to the TechnipFMC Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session [Operator Instructions] Thank you. I would now like to turn the conference over to Matt Seinsheimer, Senior Vice President of Investor Relations and Corporate Development. Mr. Seinsheimer, please go ahead.

Thank you, Jack. Good morning, and good afternoon, and welcome to TechnipFMC's Second Quarter 2022 Earnings Conference Call. Our news release and financial statements issued yesterday can be found on our website. I'd like to caution you with respect to any forward-looking statements made during this call. Although, these forward-looking statements are based on our current expectations, beliefs, and assumptions, regarding future developments and business conditions, they are subject to certain risk and uncertainties that could cause actual results to differ materially from those expressed in, or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K, most recent 10-Q, and other periodic filings with the US Securities and Exchange Commission. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to Doug Pferdehirt, TechnipFMC's Chair and Chief Executive Officer.

Thank you, Matt, and congratulations on your recent promotion, and your expanded role. Thank you for participating in our second quarter earnings call. Before I comment on the strong operating results in the period, I want to first talk about yesterday's announcement regarding shareholder distributions. At our Analyst Day in November of 2021, we shared with you what we believe to be in an appropriate capital structure for our company. Since then, we have made substantial progress towards our goal. In the second quarter, we successfully reduced gross debt by more than $500 million, and we remain confident in our ability to achieve our stated target of $1.3 billion. This targeted capital structure will ensure that we can maintain strong access to credit and allow for continued investment in our business through the cycle. Given our debt reduction to date, we now have the flexibility to begin shareholder distributions, as evidenced by the announcement of an authorization to repurchase up to $400 million of our common stock. This represents 14% of the company's outstanding shares at yesterday's closing price. We firmly believe that, our shares are undervalued and that the share repurchase program underscores our confidence in the long-term outlook for our company. Simply put, buying our shares is one of the most compelling investments available to us today. In addition to this opportunistic approach to shareholder distributions, we have reaffirmed our intent to initiate a quarterly dividend in the second half of 2023. Our debt reduction, share repurchase announcement, and reaffirmation of a dividend distribution, are all important milestones in delivering greater shareholder value. Turning to our financial results, I am very pleased with the solid performance demonstrated in the quarter, and the strong start to the year. Total company revenue in the period was $1.7 billion. Total company…

Thank you, Doug. Total company inbound orders were $2.2 billion in the quarter driven by strong Subsea inbound of $1.9 billion. Total company backlog increased 2% sequentially to $9 billion. Revenue in the quarter was $1.7 billion adjusted EBITDA was $187 million. Second quarter income from continuing operations was $2 million, which included after-tax charges and credits that netted to an expense of $6 million. When excluding the impact of charges and credits, our adjusted income from continuing operations was $8 million or $0.02 per share. These adjusted results also included a loss on early extinguishment of debt of $30 million. Now turning to segment results. In Subsea revenue was $1.4 billion, up 10% from the first quarter. Revenue increased sequentially primarily due to higher project activity in Africa, the North Sea and Brazil. Subsea Services revenue increased versus the first quarter due to seasonal improvement, including higher installation activity. Adjusted EBITDA was $176 million with an adjusted EBITDA margin of 12.4%, up 240 basis points versus the first quarter. Adjusted EBITDA increased 36% sequentially, primarily driven by higher revenue and increased installation and service activity. In Surface Technologies revenue was $303 million, up 14% from the first quarter. Revenue increased sequentially primarily due to accelerated growth in North America which benefited from the continued increase in drilling and completion activity. Adjusted EBITDA was $32 million a 47% increase sequentially. Results benefited from higher activity and improved pricing in North America. Outside of North America, adjusted EBITDA increased modestly due to the impacts of the transition to a new manufacturing facility in Saudi Arabia. Adjusted EBITDA margin was 10.7% up 250 basis points versus the first quarter. Turning to corporate and other items in the period. Corporate expense was $22 million net interest expense was $28 million and tax expense…

Certainly [Operator Instructions] Your first question comes from Chase Mulvehill with Bank of America. Your line is open.

Hi. Good morning. I guess, good afternoon over in Europe. So Doug, first question just kind of thinking about the macro here and obviously you gave us a good update on the Subsea opportunity list $24 billion. But if we can look past that a little bit and just think about tieback opportunities, could you talk about tieback opportunities out there? And maybe how much you think that's still left out there? I mean obviously, we've been doing a lot of tiebacks over the past few years. So just trying to understand kind of how much of that opportunity kind of still sits out there.

Sure. Good morning, Chase. Actually you raised a really good point. If you look at the Subsea opportunity list, which increased 43% since this time last year and now represents $24 billion, you are correct in pointing out that the majority of these are actually large greenfield projects. Behind that is a significant amount of tieback or brownfield activity that is still ongoing. I don't know that I'd call it even middle innings. We're still fairly early and there's lots of opportunities. And you can see that in our inbound numbers in the first half, where a large portion of the inbound number is actually coming from unannounced awards, or if you will, some of the smaller awards that aren't always, but are often in that category of tiebacks or brownfield. So simply stated, it remains extremely robust. There's a lot of activity. It is the shorter cycle part of Subsea and it's one that our integrated model, coupled with our Subsea 2.0 platform, makes us the partner of choice, because we can deliver those projects in 12 to 14 months, which has a huge impact on the tieback opportunities and a reason why we've been, if you will, doing so well in that market.

Okay. All right. Perfect. A quick follow-up, I don't know how far I'm going to get with this, but I'm going to give it a shot. But you just said, for 2022, for Subsea margins, kind of, pointing us towards the midpoint for the full year. But obviously, you're booking, some strong backlog, presumably a better pricing, better margins. So when we look out to 2023, I'm assuming that kind of points to better margins. But I don't know, if you -- if it's too early for you to give any color, I know, you won't be explicit, but just kind of directionally, how should we be thinking about margins in -- for Subsea for 2023?

Chase, I would have been surprised if you didn't ask. So, certainly, worth asking. I think it is a bit early to give segment guidance, if you will. But no doubt, the market is setting up very nicely, particularly for us, because of the large portion of direct awards that are a result of the unique iEPCI offering are the large installed base in Subsea services, as well as our partners and the direct awards that we received from our partners. So we remain very excited about the remainder of 2022 as well as 2023. But I'm going to turn it over to Alf to maybe give you a bit of color, more from a total company perspective than a segment perspective.

Yes. Thank you, Doug. And certainly, it's a little bit early to give specific guidance here for 2023. But what we can say is that, we do expect continued revenue growth and that is in both segments. And when we look, maybe, at company EBITDA, we are on track to grow up to 20% based on the progress we've seen so far. So, for instance, the second consecutive quarter of $1.9 billion of Subsea inbound and the total inbound approaching $7 billion and indeed the Subsea orders continue to be booked at average margins -- in average margins that are accretive to backlog. And then, when you just quickly glance at Surface, we certainly continue to see continued progression in our Surface margins as well. So that's probably the color I can offer at this point in time. But the takeaway is that, the company EBITDA is expected to go up in 2023 and we are currently saying up to 20%.

Okay. Perfect. Sounds good. I'll turn it over. And congrats Matt on the promotion.

Thank you, Chase.

Your next question comes from the line of Mark Wilson with Jefferies. Your line is open.

Hi. Good morning, gentlemen. I'd like to ask about the profile of the free cash flow and cash generation from here. And specifically, what is different going forward versus, let's talk to the past 12 months, or since separation of Technip Energies. You had a net debt 1Q last year of just under $1.8 billion, is just under $0.8 billion now. So there's $1 billion of deleverage and you've sold $1.2 billion of energy shares. You spent about $250 million of CapEx. So it suggests roughly cash breakeven over the last 12 to 18 months. And so, could you just take us through the moving parts that changed that profile going forward. Doug or Alf, in terms of your own self-help of your cost versus the market pricing and the pass on cost, one imagines. Everyone's talking about inflation, but, yes, these moving parts as we look forward to this cash generation. Thank you.

Yes. No, certainly, thank you. So, first of all, admittedly, Q2 was a bit lighter than expected. We did have some net working capital outflow in the quarter. And if you look at the most specifically moving apart from quarter-to-quarter, it is truly the timing of achieving milestones getting the billings and the collections done in particular for the Subsea projects. This remains our biggest driver for quarter-to-quarter fluctuations. And similar to last year, we do expect and we do see this in our Subsea profile. As I mentioned in my prepared remarks, we really have the highest activity on Subsea driving through the progress that drives our contract assets and our receivables in Q2 and Q3 and they drive them towards collection in the third quarter and the fourth quarter. So we very much expect the same pattern this year. In terms of why we're confident, we obviously have visibility to all these milestones and the associated collections. So this gives us overall confidence in our guidance. And obviously, again, that's going to be the major driver for the annual cash flow. Now if you look at it more broadly, just talked about that the EBITDA, we expect that to continue to drive forward. We continue to expect to have a favorable ratio between call it the depreciation and amortization profile versus the CapEx. We continue to look at our CapEx to come in -- this CapEx for the year for $230 million, for instance, is probably we have a good chance to come in below that. But we expect to continue to have that favorable ratio between depreciation, amortization and CapEx and adding new CapEx. So if you remember back to the Analyst Day, we actually said that we would have a range of 3.5% to 4.5% of our revenue to be in CapEx. We continue to see a trend that we are at the lower end of that range. And I really don't have anything that I expect that to drive it up significantly, as we look forward right now. So, those are some of the dynamics and I don't know if that helps you. But maybe Doug wants to add a few words.

Sure. Why don't I add a little bit on the cost side Mark to your question. We talked a lot about this at the Analyst Day back in November. A lot of what we have been doing in the company to iEPCI changing the commercial model Subsea 2.0 enabling configure to order, or CTO as our new operating model, both give us significant cost leverage because we can get the benefits of scalability and we're seeing that. And if you remember back in the guidance we gave and November of last year, which was Subsea margins would expand to 15% by 2025 along with revenue growth, doubling the EBITDA of Subsea that had very little pricing element involved. There was activity there was volume because our revenue was going from $5.5 billion to $7 billion, but we're in a very different environment today. And we're seeing the benefit of all the hard work and the innovation and now the saturation with Subsea 2.0, 50% of our orders over the next two years we expect to be Subsea 2.0 that creates that ability to really start to get that cost leverage. And then on top of that we are certainly in a very different pricing environment than we had envisioned just six months ago. So, net-net very favorable.

That is great color. And yes there's a lot on this at the Analyst Day. So I appreciate the follow-on from that. Can I maybe follow up Doug and ask in terms of the Subsea 2.0, is it also a case that you're only just starting to roll out really that -- those types of equipment sets that you've manufactured. Just give us an idea of how many of those you've actually put in place out there in the market?

Yes. So 2.0 orders started -- we commercialized at the end of 2017, 2018. Started to get some orders obviously in 2019, and 2020 was obviously a pretty tough year for all of us. And now we're -- the orders are ramping up as indicated. We expect up to 50%. So if you just add kind of the normal delivery schedule to that, you're starting to see those installations go into place. I don't have an exact count. I actually don't track the exact number of Subsea 2.0 installations if you will, but they are there. They're going well. We've had repeat orders from all of the customers that we've delivered Subsea 2.0. And in some cases like you saw us announce last quarter and then this quarter announced the first call off, we have customers that are now going exclusively to Subsea 2.0 like TotalEnergies decision to do that for their brownfield activity in Angola. So yeah things are definitely moving very favorably and we're very pleased and humbled by the success of 2.0.

Excellent. Thank you for the color. I’ll hand it out.

Our next question comes from the line of David Anderson with Barclays. Your line is open.

Hi, Doug, how are you?

Very well. Good morning, David.

Good morning. So order has taken a big leg up here as you mentioned since 2013. So long time since we've seen us. I was wondering if you could talk a bit about your manufacturing footprint, your capacity and how it sits today compared to the last time we saw this. Last time the market really expanded, not necessarily just a number of trees but more where it is, what's changed and your expectations for operating leverage with particularly this configure-to-order model, which I would think would drive quite a bit of that.

Well, David you're spot on. And it's actually an intriguing question because in this environment you think we'd be announcing big capital increases and adding more manufacturing capacity, adding more fixed assets. We said we were going to change the way business was done. We were going to develop our model, so that we could drive higher returns and sustainable returns and attractive through-cycle returns. And David if it wasn't for 2.0 and the ability now to be able to leverage the configure-to-order model would be in a very different situation. So we have doubled the Subsea 2.0, CTO allows us to double the throughput capacity within the same footprint. So we've actually reduced manufacturing capacity roofline, but increased our throughput capacity. That's just exactly what we want to hear and we believe our investors want to hear. And it's what sets us up I believe to deliver a very different results than what is typical at this point in the cycle when companies are increasing their capital budgets to accommodate the growth. In addition to that beyond the manufacturing you know we've changed the operating model in the industry by partnering with others and using their assets and providing them access if you will to our market, a much of which is proprietary because of the integrated model and the direct awards that we have, allowing them access to that market where we can utilize their floating assets to support our fleet without us having to add additional capacity to be able to service this growth. So this is our approach. We're going to remain very disciplined, but still grow the company, which I think is the best of all scenarios.

Just a quick follow-up on the trees. You mentioned 50% were Subsea 2.0. Does that also mean 50% would be the CTO model? Is it kind of -- is that how it works, or…

Yeah. That's a great…

…will you do CTO on non-Subsea 2.0. Maybe I just got that confused a little bit.

No. Thank you for clarifying. And yeah the best way to think about it is 2.0 enables CTO. So CTO equals 2.0.

Okay. Thanks. So my other question was on your Surface business. Obviously a really good leverage to the Middle East rig count. You talked about this briefly. I was wondering if you could expand a little bit more on what's going on in the market right now. We've heard mixed things. It sounds like things are idling. But I would think with the rig counts picking up that you're already starting to see a pretty big pickup in demand on that Surface side and also does that new manufacturing facility in Saudi, does that cover all of your needs in country or do you still have to bring some stuff in?

Sure Dave. So let's start with what we believe will be the most significant growth market for us in Surface, which is the Middle East. And it's not just Saudi. It's beyond Saudi. And be it Saudi, be it UAE, Oman, Kuwait, et cetera. There's a significant amount of investment going on in the Middle East today. The facility that we built in Saudi will cover 100% of our needs and Aramco's needs from us. So we will be doing that if you will be fully vertigrated within the country and a similar approach we have in the UAE. So that's the most significant market for us. We are well positioned -- the -- as we indicated in the prepared remarks, we're on way now in accepting new orders and there'll be a ramp-up. It doesn't happen overnight, but there'll be a ramp-up through the end of the year in being a really strong run rate then for 2023. North America remains robust as well, not necessarily the same growth potential in our view, but one where there's certainly a limitation of capacity as we've kind of reached -- kind of stretched beyond the resources that are available be it human resources or physical resources within the market. There it's very important to us that we generate returns that are acceptable. And we are -- as a result of that requiring a higher price point higher returns for the work that we're doing in the North American market.

Pretty clear. Thanks Doug.

Your next question comes from the line of Arun Jayaram with JPMorgan. Your line is open.

Good morning, Doug. I wanted to see if you could talk a little bit about the pricing dynamic you're seeing within the industry. You mentioned the potential for 350 Subsea tree awards this year. And the one of the things we did note is going back to Schlumberger's call that they noted improving pricing dynamics and the fact that their backlog was growing. And that was going to be a key driver of their second half growth. So just wanted to get some thoughts on what you're seeing in terms of pricing?

Sure. Good morning, Arun. So agree with the comments Schlumberger made. I guess the only difference is we're seeing it now. It's not a second half event. It's obviously showing up in our results as we speak. I'm always wanting to point out that -- we -- our objective is to capture a greater portion of the economic value that we deliver to our customers. So we have very long-term relationships many of which are exclusive to our company some of which are over 20 years -- that have been in place for over 20 years. So what we do is we continue to innovate, we continue to differentiate. And as a result of that, if we can create greater economic value for our customers, they are more than pleased to share with us a greater portion of that economic value that we create. So there is no doubt that we are seeing the benefit of that. And the iEPCI model coupled with Subsea 2.0 unique combination that we offer into the marketplace is allowing us to get that benefit in terms of the share of the economic value. In addition to that, as I responded to an earlier question there's also cost leverage associated with that. So if you will we're capturing it on both ends, but at the same time making sure that we are creating greater economic value for our customers or better project returns we typically do that. Most -- the most direct way we can do that is delivering projects well ahead of what the rest of the industry is capable of doing, which we would not have been able to do without the creation of a single integrated company and the continued investment and innovation -- in technology and innovation as evidenced by Subsea 2.0. So that's what gives us the confidence as we continue to move forward.

Great. And my follow-up Doug, is that we've seen a lot of fluctuations in the currency -- the US dollar is obviously appreciate pretty significantly versus the euro. You had a very small currency impact in the quarter, but how should we think about the impact to your business just from a stronger dollar?

Sure. I'm going to have Alf comment.

Yeah. So maybe just to take it a little bit from the financial statement impact that we actually do have in our company from this. So let's start with the fact that a good portion of our backlog is actually denominated -- coming out of business units that have functional currency different than the US dollar. So that does lead not to an economic loss but to a translation of foreign exchange that in this case drives down for instance our backlog by over $300 million in this quarter alone. So there's a translation impact to the backlog that you see that still is $9 billion in total, but you see that impact. The other way that that comes through for the same reasons is as you -- if you continue to experience a higher US dollars those non-US dollar revenues and earnings will translate into slightly lower US dollars into their financial statement. So that's the most immediate financial statement impact you will have. Otherwise, when it comes to our portfolio of hedging et cetera, we are continuing to manage our cash flows, and our balance sheet positions in such a way that we minimize the foreign exchange gains and losses. So you shouldn't see anything extraordinary there. There is a third point I will make though. There are certain currencies that we cannot hedge, for instance, in Africa and as the African currencies either devalue or appreciate against the dollars you will see an impact in the foreign exchange line also which will create some variance, but those are probably the primary impacts from the dollar strengthening. Q –: Great. Thanks a lot.

Your next question comes from the line of Marc Bianchi with Cowen. Your line is open.

Thank you. I wanted to talk a little bit more about free cash flow. So you kept the guidance for the year and that would seem to imply, sort of, $600 million to $750 million of free cash generation in the back half of the year. First part of the question is just wondering if, sort of, the lower end of that range is more appropriate now just given how the first half developed. And then if you could put a finer point on what to expect in third quarter that would be helpful.

Okay. Certainly. So first of all, we continue to target the midpoint of the free cash flow. So that's the -- at the point that we still have confidence in that we can be at. Now what will cause the variation from the low to the high point is really what I kind of mentioned before, it's going to be the exact timing in the fourth quarter or how quickly we reach certain milestones and how quickly they convert to billings and collections by year end. That's going to be the primary driver for whether you end up in the high end or the low end of the range, but we continue to see ourselves having the visibility to reach the midpoint of the guidance, and that's where we continue to guide. In terms of third quarter, it's -- because of the same dynamics I mentioned, it's always difficult to call the cash flow by quarter with precision, but I will say this we certainly expect to be positive in the third quarter. And -- but to be also be clear we do believe that the bulk of the cash generation is expected to be in the fourth quarter. So that's the profile we still expect for the year.

Yes. That's helpful. And then on the buyback in the context of that cash flow progression. Should we be thinking about the buyback more likely to be occurring when you're having strong periods of free cash generation, or are they sort of independent from each other?

Yes. So maybe to say it this way. So, first of all, I mean, we're very pleased with our share buyback program announcement now. I mean, it describes how much we're satisfied with the progress we've already had on the leverage and balance sheet. And we really believe this is a question of timing. Also we do believe that the current share price reflects an undervaluation of our company. And with this in mind, we're certainly going to have a balanced approach going forward where we can take advantage of call it the undervaluation, while also being committed to having a strong balance sheet. So in that mix certainly free cash flow is going to make a difference. But it doesn't mean that we sit completely on the sidelines either as long as the valuation is through where we see favorable economics to do share buyback.

Okay. Thank you very much.

Our final question comes from the line of Waqar Syed with ATB Capital Markets. Your line is open.

Thank you. Doug, just a broader question like we've seen this outlook for offshore improve considerably. Do you think it's -- it is -- the catalyst recently has been the energy security issues, or you think even absent that the trend was always towards increased offshore activity as the cycle unfolded?

So -- thank you for the question. I think. it's really important that we are very clear in this response. This is a trend that has been underway and we are just seeing it unfold. So there is not a single catalyst, or a short-term effect. This is certainly, something that has been underway and the preferential investment in offshore for a variety of different reasons, we believe has been building and will continue going forward.

Thank you very much. That's very helpful. And just one other question that -- like the supply chain inflation has been -- is a big issue, we're seeing all across. Now your margins have been held up pretty well from the guidance that you've given before. So first of all, how are you managing inflation in your backlog? And similarly, how are you managing your -- the supply chain issues on your throughput, seems to be that you've been relatively immune in your results with all these issues, going across the world.

No. So, thank you for the question. And I appreciate the fact, that you recognize that we have managed. And to me, that's something that our shareholders expect us to do. Is it challenging? Of course, it's challenging. Is it real? Yes, it's real. But with a bit of forward planning and the development of relationships, both with our customers as well as with our suppliers, one can use that during these challenging times, to make sure that it's a win-win-win, if you will. And that's exactly been our approach. We have always stood by our suppliers, even in difficult times that we all went through during the pandemic and our customers have stood beside us. We have lots of contractual and legal reasons, why we are able to do that. But I don't think you should underestimate that. If you don't treat people right, they'll remember that. And they'll take advantage when the opportunity is. But if you just look at where we are in the market today, I alluded to in my prepared remarks, we received 117 trees in the first half of the year. Now we said, 350 for the total year. So one could ballpark, what is probably the total market and what was our position of the total market. So our suppliers understand that this is some -- this is our core business. This is a business, we're very focused on. This is a business, that if they align with us they know that they're aligning with the leader for today, as well as for tomorrow. And with that comes certain preferential treatment. And I don't think that it's -- I don't think that it's -- appreciated and that has helped us tremendously and we will continue to operate that company that way both, with our customers as well as with our suppliers. So very proud of the work that our team has done, in building those relationships, sustaining those relationships. And we continue to be very supportive of our supply chain. And again, at the end of the day yes, there's contractual support, but it's really done -- it's just the way that we do business. It's a bit unique. But it has its benefits, as is being evidenced today.

Thank you very much, Doug. Appreciate the colors.

I will now turn the call back over to Matt Seinsheimer.

Thank you. This concludes our second quarter conference call. A replay of the call will be available on our website, beginning at approximately 8:00 p.m. British Summer Time today. If you have any further questions, please feel free to reach out to the Investor Relations team. Thanks for joining us. Jack, you may end the call.

We thank you for attending the TechnipFMC, Second Quarter Earnings Call. We thank you for your participation. You may now disconnect.